Does the EU have effective tools to decarbonise its industrial clusters?
Current tools like the NZIA and policy of the CID show strong promise, but key legislation remains for adoption and gaps persist in implementation, infrastructure and financing, that the EU must address to deliver a truly transformative industrial decarbonisation strategy.
Industrial clusters can be defined as geographically concentrated groups of interconnected firms, specialised suppliers, service providers, and associated institutions within a particular field. The European Union has over 1,500 industrial clusters, spanning more than 200 regions and contributing to nearly 25% of total EU employment. These hubs constitute collaborative networks that enhance productivity through shared knowledge and infrastructure, and they have progressively become critical to the EU’s economic strength and innovation capacity. However, industrial clusters in energy-intensive industries such as steel, cement, and chemicals, often concentrate hard-to-abate greenhouse gas emissions accounting for around 20% of Europe’s industrial CO2 output (2020). This makes them a critical target to meet the EU’s ongoing target of 90% emissions reduction by 2040 while preserving industrial competitiveness, in alignment with the recent policy provided for in the Competitiveness Compass and Clean Industrial Deal (CID).
Yet, decarbonising these clusters presents significant structural and financial challenges. Most clusters are built around legacy assets such as blast furnaces, steam crackers, or fossil-based heat systems that are capital-intensive and complex to retrofit or replace with low-carbon alternatives. Deploying solutions using clean technologies typically entails multi-billion euro investments, long lead times, and significant coordination across firms and infrastructure providers (IEA, 2023). As a result, these clusters demand particular policy responses from the EU.
How do existing tools, and how might upcoming tools, contribute to the EU’s industrial decarbonisation strategy?
The Net Zero Industry Act (NZIA) has become the EU’s cornerstone legislative tool to accelerate clean energy technology manufacturing and decarbonise industrial production. It sets a binding target for the EU to domestically manufacture at least 40% of its annual net-zero technology needs by 2030, covering technologies such as solar PV, wind turbines, batteries, heat pumps, electrolysers, nuclear fission and carbon capture and storage (CCS) systems (European Commission). A key innovation of the NZIA is the creation of Net-Zero Strategic Projects, which receive priority access to permitting, funding and offtake support. These projects may be located within Net-Zero Valleys—geographic zones often overlapping with existing industrial clusters—where permitting procedures are fast tracked and infrastructure planning is integrated to support shared clean technologies.
The EU Innovation Fund is also a critical tool to support decarbonisation. It provides funding for the demonstration of innovative low-carbon technologies, therefore supporting the decarbonisation of industrial clusters by financing large-scale and breakthrough projects that reduce greenhouse gas reductions. By targeting a wide set of new technologies, the fund accelerates the deployment of climate solutions within industrial hubs, helping the EU meet its climate targets and strengthen its industrial competitiveness.
The CID, unveiled in February 2025, provides a broader investment and policy strategy to support industrial decarbonisation and competitiveness in the EU. Outlining concrete actions to be taken at EU level, it introduces new financing programmes of significant importance to advance industrial decarbonisation. This includes a new Industrial Decarbonisation Bank, tasked with mobilising EUR 100 billion from public and private sources from 2026 and a European Competitiveness Fund, which could finance the clean transition and industrial decarbonisation up to EUR 26 billion between 2028 and 2034 and in alignment with the NZIA, according to a proposal adopted by the Commission on 16 July. In parallel, State Aid rules have been relaxed under the revised Clean Industrial Deal State Aid Framework (CISAF) to enable faster approval from the Commission and allow Member States to provide up to EUR 200 million for industrial decarbonisation projects in grants, subsidies, or tax relief; aiming at closing the competitiveness gap with the U.S. Inflation Reduction Act (IRA). Importantly, the CID introduced the adoption of a proposal for an Industrial Decarbonisation Accelerator Act (IDAA) by the end of 2025. The adoption and implementation of this Act could become a critical enabler of industrial decarbonisation, as it will aim at speeding up permitting procedure for industrial access to clean energy, identifying and promoting priority projects and clusters and introducing instruments to stimulate demand and create lead markets for EU-made green products, notably via public procurement and strategic contracting.
However, while these tools and upcoming policies mark a significant step forward, their success ultimately depends on rapid adoption, followed by Member State implementation, especially in industrial clusters. Regional authorities must build permitting capacity, coordinate infrastructure planning, and ensure alignment between industrial actors and public agencies. In this context, the ambition of EU-level regulation must be matched by place-based execution, or the EU risks underdelivering on its industrial decarbonisation goals.
How these tools translate at the Member State and Industrial Cluster Level
Net-Zero Valleys have been at the center of Member States’ strategy to decarbonise industrial clusters, and are selected by national governments based on industrial potential, workforce capacity, and energy infrastructure. Within each valley, the regulatory burden is significantly reduced: a single point of contact coordinates all permitting processes, and Environmental Impact Assessments (EIAs) are proactively completed at the regional level. If a project is designated a Net-Zero Strategic Project, it receives priority administrative treatment, reducing permitting timelines to 9 months for small sites and 12 months for large installations; a major departure from the multi-year processes typical in industrial permitting (European Commission, 2024).
Among Member States, Germany has emerged as the leading example of early implementation. The country has leveraged NZIA provisions to establish Net-Zero Valleys in North Rhine-Westphalia and Baden-Wurttemberg, focusing in particular on scaling green hydrogen production and electrolyser manufacturing. These regions benefit from advanced energy infrastructure including high-voltage electricity grids, hydrogen-ready pipelines, and proximity to industrial demand centers. They also host dense networks of skilled labor, research institutions, and clean-tech firms.
However, while some regions such as Germany have successfully leveraged these policy tools, some have been less successful. For instance, Poland has struggled to decarbonise its industrial clusters particularly in coal-dependent regions like Upper Silesia, due to continued reliance on coal, limited clean infrastructure and political resistance. As such, a region’s ability to benefit from them depends on its cluster readiness. This entails several key conditions: the presence of strong local governance and inter-agency coordination and resources, shovel-ready decarbonisation projects with local stakeholder backing, access to clean energy and transport infrastructure, and availability of a skilled workforce. Member States or regions that can meet these thresholds are more likely to attract net-zero investment and strategic project status. In contrast, jurisdictions that suffer from fragmented governance or underdeveloped energy systems risk being left behind, even as EU-level tools become more robust. As such, while the NZIA offers a strong policy foundation, their success ultimately rests on the capacity of Member States to implement them effectively at the regional level.
It is however crucial for these regional hubs to keep some flexibility to implement frameworks accordingly based on their resources, finances and available means. A one-size-fits-all approach would not work otherwise.
Gaps and Challenges
Despite the ambitious goals set within the NZIA, significant implementation gaps remain that risk undermining the decarbonisation of Europe’s industrial clusters. While the NZIA sets clear objectives, such as scaling clean energy manufacturing and fast-tracking permitting; implementation is still at initial stages. In addition, a significant part of the EU's industrial decarbonisation policy remains at the strategic planning phase, awaiting concrete legislative proposals from the Commission and subsequent institutional adoption. Timely delivery remains a major concern. For instance, Member States' delayed implementation of the Renewable Energy Directive (RED III, recast) poses a significant challenge to industrial decarbonisation. Most failed to meet the May 2025 deadline for implementing key RED III provisions, including the 42% renewable hydrogen target for industry. This delay creates uncertainty for investors, hampering crucial investments and ultimately slowing down the industrial decarbonisation process.
Infrastructure constraints are another core challenge. While the EU has made considerable progress in power decarbonisation and regional interconnection–especially in electricity–industrial decarbonisation will require parallel deployment of dedicated infrastructure for hydrogen, CO2 transport and storage, and industrial interconnections. According to the European Commission, the EU will need over EUR 800 billion in public and private investment to meet infrastructure needs. Gaps persist in the strategic coordination of cross-border infrastructure, especially for sectors like steel, cement, and chemicals that require shared access to clean energy, CCS, or hydrogen infrastructure across multiple regions. Furthermore, cross-border electricity infrastructure would also benefit from additional effectiveness and more consistent implementation. The ongoing Multiannual Financial Framework (MFF) negotiations must maintain and secure its Connecting Europe Facility (CEF) energy budget, and implement the proposal to scale up from EUR 5 billion to EUR 30 billion for the 2028-2034 period. Permitting delays and fragmented procedures continue to hinder the rollout of clean industrial projects, even under the NZIA’s streamlined framework. Demand side factors are key for clean industry growth, as downstream sectors have major potential to roll out the market for low-carbon products through the use of materials such as steel, glass and cement.
Looking ahead, the IDAA and the forthcoming 2040 climate targets provide an opportunity to align clean energy deployment with industrial decarbonisation. Notably, the IDAA proposes the creation of “infrastructure-ready zones” to co-locate clean energy and industrial activity. CFE’s 2024 ADP highlights regions where clean power buildout overlaps with industrial production. Enabling co-location can reduce transport inefficiencies, enhance system integration, and lower deployment costs, thus making it a key lever for the decarbonisation of industrial clusters.
Policy Recommendations
Ensure Effective and Timely Implementation of Key Enablers: To advance industrial decarbonisation in Europe, timely and effective implementation of EU legislation by Member States is essential. Swift adoption is necessary to prevent delays that create uncertainties for investors and slow progress. The European Commission's support and coordination are vital in this process, as is ensuring accountability for any late transposition.
Align EU Budget Instruments with Industrial Cluster Needs: Given the scale and urgency of the industrial transition, the MFF must reflect the prioritisation of industrial cluster decarbonisation. This includes ensuring that the CEF, Innovation Fund, and future competitiveness mechanisms like the Competitiveness Fund are equipped to target high-impact infrastructure and clean technology deployment. In particular, funding from the Innovation Fund should be better aligned with the specific decarbonisation needs of industrial clusters, including shared infrastructure, technology adoption and demand side incentives.
Accelerate the Launch of the Industrial Decarbonisation Bank and Competitiveness Fund: Timely decarbonisation of industrial clusters hinges on access to large-scale, de-risked financing. The EU should fast track the operational launch of the Industrial Decarbonisation Bank proposed under the CID and ensure it is capitalised with at least EUR 100 billion from public and private sources by 2026. Furthermore, the EU should also proceed with the adoption of an ambitious clean transition and industrial decarbonisation pillar under the future European Competitiveness Fund to ensure streamlined and effective access to funding.
Invest in Cross-Border Infrastructure and Secure Critical Supply Chains: The EU must address infrastructure bottlenecks that limit industrial integration and clean technology deployment. This includes investing in cross-border electricity grids, hydrogen corridors, and CO2 transport networks, supported by EU-wide planning and permitting coordination. Accordingly, the co-legislators should ensure the timely adoption of the more ambitious CEF proposed under the MFF for 2028-2034.
Ensure the timely adoption and implementation of an ambitious Industrial Decarbonisation Accelerator Act: The IDAA should simplify industrial access to clean energy and focus support on strategic clean tech manufacturing, providing transition funding for high-emission regions undergoing restructuring. It should prioritise infrastructure-ready zones with high energy demand to maximise emissions reduction and cost-effectiveness. Additionally, the Act must allow Member States flexibility to pursue technology-neutral strategies, while implementing emissions-based product standards. Stimulating downstream demand through strategic procurement and partnerships is also essential.